The government is committed to action on climate change and the need to reduce our carbon pollution.

This is because the government accepts the science and understands both the damage that unmitigated climate change would cause to Australia and the opportunities for our economy if we take action.

Putting a price on carbon is the cheapest and fairest way to cut pollution and build a clean energy economy for the future. The government also recognises that there are sectors in the economy which are particularly exposed to a carbon price and may not be able pass these costs on as a result of their trade exposure. This is why the government has carefully designed the Jobs and Competitiveness Program which provides these exposed industries with transitional assistance while still maintaining the incentives to reduce emissions.

Australian steelmakers currently face considerable pressures from factors other than a carbon price, including international competition, the high Australian dollar, increases in raw material costs and subdued growth in the Australian construction industry.

In response to these issues, this bill will enable the government to make a Steel Transformation Plan, which will be referred to as the 'plan', to help the sector transform into an increasingly efficient and sustainable industry in a low-carbon economy.

The steel plan will provide assistance worth up to $300 million over six years from 2011-12 to encourage investment, innovation and competitiveness in the Australian steel manufacturing industry.

The plan is designed to improve the environmental outcomes of steel manufacturing and promote the development of workforce skills.

Funding under the plan will be in addition to assistance for steelmakers under the Jobs and Competitiveness Program, which is part of the Clean Energy Future plan.

Importance of the steel industry

Australia is ranked 22nd in the world for steel production and consumes around seven million tonnes of steel domestically each year.

The Australian steel manufacturing industry operates in a mature, open but relatively small domestic market, with ongoing import and export activity. Australia produces steel using two main production methods: integrated steel production using blast furnaces; and electric arc furnaces based on scrap steel.

The Bureau of Steel Manufacturers of Australia estimates that in 2006-07 all major Australian steel manufacturing activities employed a total of over 91,000 employees and had revenues of $29 billion.

Australia typically exports around two million tonnes and imports two to three million tonnes of steel annually. In 2010, Australia exported $2.13 billion and imported $4.36 billion of iron and steel products.

Australia’s export markets for iron and steel are diverse, with over 100 different countries regularly purchasing Australian products. The United States and New Zealand dominate Australia’s steel export market, with other products exported to Asia.

As many members would know, Australia's primary steel production is based at:

Port Kembla, Sydney and Newcastle in New South Wales;

Laverton and Westernport Bay in Victoria; and

Whyalla in South Australia.

Economic factors affecting the steel industry

During the global financial crisis in 2008-09, world steel production dropped 15 per cent. For the same period, Australian demand for steel products dropped by 29 per cent.

The collapse of demand during the global financial crisis caused world steel production capacity utilisation rates to drop below 60 per cent in early 2009 from pre-GFC rates of 85 per cent. In addition, average world composite steel prices collapsed by over 50 per cent, from a high of US$1,160 per tonne.

Following the global financial crisis, in 2010, total world crude steel production hit a record of 1.41 billion tonnes. In 2010, the top 10 steel producers—China, the EU, Japan, the US, Russia, India, Korea, Ukraine, Brazil and Turkey—collectively produced 81 per cent of all steel. In recent years, there has been a marked shift from Western Europe and the United States to North-East and South Asia as the major steel producing countries.

According to the OECD, global steel demand was at a historically high level in the third quarter of 2010. However, advanced countries’ steel demand is still below pre-GFC levels, while emerging markets’ demand is higher.

Steel manufacturers are also facing raw material input cost increases primarily due to strong demand for iron and coking coal. Raw material costs as a proportion of industry revenues have increased from approximately 35 per cent in 2003 to over 60 per cent in 2010.

Steel manufacturers are also facing a high Australian dollar. The Australian dollar is currently trading above parity with the US dollar, driven by the terms of trade, and is well above its long-run average against the US dollar. There is also soft demand in steel producers' target market segments for value-added products, notably residential and non-residential building construction in Australia, which represent more than 50 per cent of domestic steel use.

Overview of the bill

This bill is a framework bill.

The Steel Transformation Plan will encourage investment, innovation and competitiveness in the Australian steel manufacturing industry in order to assist the industry to transform into an efficient and economically sustainable industry in a low-carbon economy. This will be achieved in a way that improves environmental outcomes for the industry and the promotion of workforce skills.

The steel plan will contain two elements. The first is a $300 million entitlement scheme that will operate over the five years from 2012-13. The second element will provide for competitiveness assistance advance payments, which will be referred to as advances, up to the value of $164 million in 2011-12. Entitlements under the plan would be reduced by the value of any advance payments made.

The plan

The bill provides the government with the power to make the plan and sets limits on how the plan can be designed. The plan itself will be contained in a legislative instrument, which will be made in consultation with industry and relevant trade unions and which, of course, is reflected in the bill.

Assistance will be limited to $300 million over the five years of the plan, with a maximum of $75 million in each year. Guaranteeing this level of funding through a standing appropriation provides the steel manufacturing industry with certainty in respect of the amount of assistance it will be entitled to receive through the plan.

The bill sets out the matters to be contained in a legislative instrument, including: the registration of participants, the making of payments under the plan, the recovery of amounts by the Commonwealth, the payment of interest on overpaid amounts, the review of decisions, and other matters required or permitted to be included in the plan.

The bill also includes a strong monitoring regime. These provisions will support the delivery of the plan through a self-assessment entitlement program to facilitate effective monitoring and to ensure the integrity of the plan. This is balanced with the inclusion of provisions that protect the rights of occupiers of premises.

Advances

The advances will be to assist eligible corporations to undertake activities that will significantly enhance the competitiveness and economic sustainability of the Australian steel manufacturing industry in a low-carbon economy.

Any assistance paid as advances will be deducted from future entitlements that any eligible corporation can receive in later years under the plan.

Conditions for the advances would be at the discretion of the minister.

Commencement of this bill will be contingent on the passage of the clean energy future legislation. However, this bill does not form part of the clean energy legislation that was agreed by the Multi-Party Climate Change Committee.

Additional assistance measures

In addition to the payments provided under this bill, the government has committed to task the Productivity Commission to undertake two separate reviews of the steel industry, if they are requested by industry participants. The Productivity Commission Act 1998 already provides the government with sufficient legislative power to commission these reviews.

First, at any time prior to the lapsing of the plan, eligible corporations may make a request to the government that a review be undertaken by the commission into the impact of carbon pricing on the competitiveness of the steel industry. The review would take into account the lapsing of the plan, the industry's broader circumstances including a range of factors related and unrelated to the carbon-pricing mechanism that are affecting the competitiveness of the industry. The review would make recommendations to the government about whether it should adjust support to the industry and the appropriate mechanism for that assistance. This review would not reduce the assistance provided to the eligible corporations already committed under the plan as it is set out in this bill.

Second, at any time during the period that steel manufacturers are entitled to assistance under the Jobs and Competitiveness Program one or more of the companies conducting these activities may notify the government in writing:

that there are reasonable grounds to believe that one or more suppliers of coal have passed through or are proposing to pass through cost increases resulting from the application of the carbon-pricing mechanism to the coal suppliers' businesses; and

that they request a review of this situation.

The government commits that if it receives such notice, it will refer this matter to the Productivity Commission for review. The Productivity Commission would be asked to make a finding as to whether there are reasonable grounds to conclude that carbon costs are or will be passed through, and if such a conclusion is reached it will specify the amount of pass through it has identified. The government will decide whether it should adjust support to the industry and the appropriate mechanism for that assistance, and will respond in a timely way. Any assistance provided by the government to offset the carbon costs of coal suppliers will be taken into account.

The government has also agreed that from 2016-17 the government will provide an additional 10 per cent increase in the baseline for the two steel manufacturing activities that have been defined for the purposes of the Jobs and Competitiveness Program. Subject to passage of the Clean Energy Bill 2011 the government will make regulations for the purposes of the Jobs and Competitiveness Program by March 2012, which will include this commitment.

This bill will support existing direct Australian government measures to support the steel industry, including the Steel Industry Innovation Council, the Steel Supplier Advocate, the Industry Capability Network National Steel Manager and collaborative relationships between the steel industry, the CSIRO and cooperative research centres and other Commonwealth funded research agencies.

Conclusion

In conclusion, the steel manufacturing industry is, of course, very important to this country. The recent announcements by BlueScope Steel in relation to their Port Kembla blast furnace and Western Port hot strip mill demonstrate the significance of the steel industry to specific regional communities.

The government is committed to working with the steel industry and local communities to maintain a successful industry and to support steelworkers jobs.

Taking into account assistance to be provided under the Jobs and Competitiveness Program, the carbon price will not have a significant impact on the steel industry. The industry has confirmed this is the case. However, the range of factors unrelated to the carbon price currently affecting this industry requires a firm government commitment to support this industry and the regional communities that rely on it, and that is what is represented by this bill and the commitment of this government.